Section 69A Inapplicable to Cash Deposits Recorded in Books: ITAT Visakhapatnam

DCIT Vs Jaya Prakash Babu Valluri (ITAT Visakhapatnam)

The Income Tax Appellate Tribunal (ITAT), Visakhapatnam Bench, adjudicated an appeal filed by the Revenue (DCIT) against the order dated September 16, 2020, passed by the Commissioner of Income Tax (Appeals)-1, Visakhapatnam [CIT(A)] for Assessment Year 2017–18, along with Cross Objections filed by the assessee, Jaya Prakash Babu Valluri.

Material Facts & Procedural History

• Section 40(a)(ia) Disallowance: During assessment proceedings, the Assessing Officer (AO) observed that the assessee debited ₹58,90,819 under various heads in the P&L account. Due to alleged non-furnishing of head-wise TDS details, the AO disallowed 30% of the expenditure, amounting to ₹17,67,246, under Section 40(a)(ia).
• Interest Disallowance: The assessee borrowed funds for interest, paying ₹67,20,330 in total. A sum of ₹31,06,036 related to loans advanced to a sister concern, M/s Vasantha Vihar Construction India Pvt. Ltd. (VVCIPL). The AO treated this ₹31,06,036 as non-business expenditure and added it back to income, ignoring that the assessee had received an identical interest amount of ₹31,06,036 from VVCIPL and offered it to tax under ‘income from other sources’.
• Demonetisation Cash Deposits (Section 69A): The AO treated cash deposits aggregating to ₹2,21,24,156 made in bank accounts during the demonetisation period as unexplained money under Section 69A.
• CIT(A) Order: On appeal, the CIT(A) deleted all three additions. The CIT(A) found that:
  • For TDS, the assessee had deducted tax on commission and painting works, while other individual payments (salaries, electrical charges, NMR workers) did not exceed the prescribed statutory thresholds.
  • For interest, the payment and receipt were of equal amounts (₹31,06,036), leaving no excess expenditure.
  • For cash deposits under Section 69A, the AO made factual errors in quantification and double-counted ₹14,95,500. The actual demonetisation deposits in housing business accounts were ₹8,95,500 (out of ₹36,81,700 total annual deposits), and in the petrol bunk business (M/s Venkata Durga Enterprises) were ₹83,00,122 (out of ₹5,91,82,387 total annual deposits). All deposits were fully accounted for in regular books of account and sourced from business sales.
• The Revenue appealed the CIT(A)’s deletions before the ITAT, and the assessee filed Cross Objections.

Legal Issues & Statutory Provisions

• Section 40(a)(ia) of the Income Tax Act, 1961: Disallowance of 30% expenditure for non-deduction of tax at source where payments do not exceed statutory threshold limits.
• Section 69A & Section 115BBE of the Income Tax Act, 1961: Addition of cash deposits as unexplained money when deposits are sourced from sales recorded in regular books of account during the demonetisation period.
• Allowability of interest expenditure corresponding to equal interest income offered under ‘income from other sources’.

Parties’ Submissions

• Revenue’s Submissions: The Ld. DR relied on and supported the AO’s assessment order.
• Assessee’s Submissions: The Ld. AR contended that TDS was deducted wherever applicable and other payments were below statutory limits. Cash deposits were fully recorded in audited books of account and represented sales from real estate and HPCL petrol bunk operations, which were permitted to accept specified bank notes during demonetisation.

Tribunal Observations & Findings

• Ground No. 2 [Section 40(a)(ia) Disallowance]: The ITAT observed that TDS was duly deducted on commission and painting works. The AO failed to identify individual recipients or establish that payments made under other heads exceeded the threshold limit for TDS deduction. The CIT(A)’s deletion was upheld.
• Ground No. 3 [Interest Expenditure]: The ITAT observed that the assessee incurred ₹31,06,036 in interest expenditure and received an equal amount of ₹31,06,036 as interest from VVCIPL, which was offered to tax. There was no net excess expenditure incurred. The CIT(A)’s deletion was upheld.
• Ground No. 4 [Section 69A Cash Deposits]: The ITAT affirmed that the AO committed factual errors in quantifying cash deposits. The deposits were sourced from cash book balances and sales recorded in regular, un-rejected books of account. For M/s Venkata Durga Enterprises (petrol outlet), sales proceeds were accepted as allowed by Government guidelines during demonetisation. Since the money was recorded in books, Section 69A could not be invoked.
• Cross Objections: Ground No. 1 (capital account addition of ₹11,10,000) was dismissed as not pressed by the assessee. Grounds 2 to 5 became infructuous upon the dismissal of the Revenue’s appeal.

Directions & Final Decision

• The ITAT dismissed the Revenue’s appeal in its entirety, upholding the CIT(A)’s deletions.
• The ITAT dismissed the assessee’s Cross Objections.

Cases Discussed

• Teena Bethala (ITAT Bangalore), I.T.A. No.1383/Bang/2019
• Karthik Constructions (ITAT Mumbai), I.T.A. No.2292/Mumbai/2016

FULL TEXT OF THE ORDER OF ITAT VISAKHAPATNAM